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#Grad School: Still Worth the Money?

Harvard Business School Baker Library 2009 (Photo credit: Wikipedia)

The recent economic downturn has sparked a media frenzy over the value of graduate school. Pundits and young professionals alike are wondering if grad school is still worth the hefty investment. Law school, in particular, has been maligned by everyone from The New York Times to independent bloggers, who use anecdotal evidence to question the job prospects for future graduates.

Business school has also not escaped the fray. While there have certainly been isolated cases of law and business school graduates having trouble finding jobs (this trend is limited primarily to graduates from less well-ranked schools), graduate school is still undoubtedly a “slam dunk” investment for nearly all potential applicants. The costs of business and law school may be substantial, but the significant, lifelong returns justify the investment for the vast majority of applicants. The numbers speak for themselves:

Business School

The average total tuition for a top-20 business school in the 2011-2012 academic year was $102,355, according to data gathered by Bloomberg Businessweek. The full cost of an MBA must also take into account the opportunity cost of leaving the workforce for a couple years. Since the average starting salary for a Class of 2012 college graduate is $44,442, according to the April 2012 Salary Survey from the National Association of Colleges and Employers. the opportunity cost of not working for two years in your mid- to late-twenties is approximately $100,000, making the total cost of business school approximately $200,000.

While this is a significant sum, which is compounded for some applicants by the interest rate on their student loans (anywhere from 3-10 percent for a ten year term, some or all of which may be tax deductible depending on your future income), the cost of business school is clearly justified by the increased lifetime earnings after graduation. For example, graduates of the 57 top MBA programs will earn approximately $2.4 million in base pay and bonuses over a 20-year career, according to PayScale research commissioned by Businessweek. Graduates from the very best business schools earn the most throughout their career, with Harvard Business School graduates earning an average of about $3.6 million, and University of Pennsylvania’s Wharton School and Stanford Graduate School of Business graduates earning $3.3 million on average.

After 40 years of working (which is increasingly the norm today), individuals who hold MBAs will have earned between $5 million and $8 million and will have spent only about three to five percent of that on the cost of business school (including opportunity costs and student loan interest).

Compare this to adults with only a bachelor’s degree, who earn an average of $2.3 million in their lifetime assuming 40 years of work, according to a study released in August 2011 by the Georgetown University Center on Education and the Workforce. Business school graduates earn in 20 years the same amount or even more than those with just bachelor’s degrees earn after 40 years in the workforce.

The average tuition of a top 14 law school in the 2011-2012 year was $49,551 per year, according to U.S. News World Report data analyzed by The AM Law Daily. so the cost for the full three years of law school is approximately $150,000. As with business school, the full cost of law school must also account for the three years of lost salary, which comes to approximately $135,000. Therefore the total cost of law school is around $285,000 (and slightly over $300,000 for those with substantial student loan debt).